UK construction output ended the year with its 12th month of shrinking in December, marking the longest negative run since the global financial crisis. It’s hard to see if 2026 will bring any growth for the sector.
The Purchasing Managers’ Index (PMI) registered 40.1 in December, barely above its five-and-a-half year low of 39.4 in November. Below 50 is a contraction. Workloads fell in December amid depressed demand and low client confidence. Delayed spending decisions remain a key factor in weak sales pipelines. The PMI’s housebuilding subindex fell to 33.5, the lowest since May 2020, when Covid forced the closure of building sites.
The government’s ambitious housebuilding target of 1.5 million new homes over five years looks almost certain to be missed, while on the commercial side, civil engineering is very weak, posting a PMI figure of 32.9 for December. Many construction companies are pinning hopes on lower borrowing costs, rising infrastructure spending and weaker inflationary pressure to drive a turnaround, but relatively encouraging trends in these areas have so far done little or nothing to improve confidence of decision makers controlling overall demand.
It’s an inescapable fact that many businesses will need a cash injection to be able to undertake large projects, such as data centres. Cashflow problems already caused by late payment or bad debts are set to continue in the foreseeable future. The ongoing labour shortage could add more woe: while some redundant workers from failed companies might get snapped up quickly elsewhere, huge numbers have left the sector, either returning home to Europe or simply retiring. The skills gap in plumbing, bricklaying and other areas will need to be plugged by higher wages, further reducing margins.
There are no convincing signs of a construction recovery – and many companies will need to trade out of the red before taking full advantage of a better environment. Credit insurers agree that delayed projects, a lack of skilled labour, or a squeeze in worker supply could be the last straw for many. The construction sector remains poorly placed to absorb losses.
VTB failure shows sanctions law remains tight
The Buchler Phillips team is no stranger to helping businesses and individuals navigate the maze of existing or potential sanctions as a result of their ownership or international activities. We’re also experienced in recovering assets from jurisdictions the world over. The firm works alongside a range of leading legal advisers to achieve an optimal outcome for clients continuing to manage legitimate UK enterprises at a time when the dynamics of international relations are complex. We were therefore particularly interested in a legal case in recent weeks involving the UK arm of Russia’s second largest financial services group.
VTB Bank was told by the High Court that there was nothing unlawful about the UK amending a sanctions licence blocking the bank from recovering more than £200m in debts through the administration of its London based subsidiary. The amendment was intended to prevent VTB Bank recovering the same debt it was owed twice, both by enforcing claims outside the UK and by pursuing them in the insolvency of its subsidiary, VTB Capital PLC. Judge Rowena Collins Rice said: “The purpose of the amended license was to limit what might be described as any unintended and unforeseen consequences of not making more restrictive licensing provision sooner.” She rejected VTB’s argument that the Office for Financial Sanctions Implementation (OFSI) had acted for an “improper purpose” by “loading the dice” in favour of a restructuring plan which would reduce the bank’s effective recovery claims.
The bank, whose UK assets were frozen following Russia’s invasion of Ukraine in 2022, claimed that the amendment required administrators to deduct more than £223 million from its potential claim as a creditor in VTB Capital (VTBC). The judgment said that VTB had already submitted a “proof of debt” in the VTBC administration for an amount in excess of £205 million.
Sanctioned individuals and corporates should not expect any easing in the foreseeable of the UK legal framework restricting their activities. In addition, those dealing with sanctioned parties, particularly where they may be contractually obliged to make payments to sanctioned or potentially sanctioned entities, face the possible risk of breaching sanctions. Professional advice is critical when weighing the risk of contractual exposure with falling foul of OFSI and other regulators.
SMEs need Growth Guarantee expansion
Since Small and Medium Enterprises (SMEs) account for three-fifths of UK GDP and employment, it’s reasonable to suggest that new investment from these businesses is pivotal to getting the economy back on track. Yet access to borrowing remains limited – partly because the appetite for debt from SME bosses is very low.
Against a backdrop of gently falling interest rates and an ongoing need to boost national productivity, key stakeholder groups are urging UK Small and Medium Enterprises (SMEs) to overcome their aversion to bank debt and explore a broader range of funding options. The Bank of England cut base rates to around 3.75% in late 2025 to support economic growth, though many SMEs remain cautious about taking on finance amidst economic uncertainty. Office for National Statistics (ONS) figures put the UK’s total investment (public + private) at less than 19% of GDP, the lowest among G7 nations, underscoring long-standing underinvestment that could dampen SME growth.
Challenger bank Allica highlights persistent gaps in SME finance: even as alternative lenders have increased their footprint, the market still trails long-term lending trends, particularly in overdraft and unsecured facilities where use and approvals have fallen sharply compared with earlier decades. Many small firms still struggle to access appropriate credit, especially those with turnovers below £1m, reinforcing the issues around collateral-based lending in a largely service-oriented SME economy.
The Institute of Chartered Accountants in England and Wales (ICAEW) continues to point to cost, time and regulatory complexity as key barriers to debt finance uptake, noting that some SMEs resort to personal borrowing to cover investment or cash-flow shortfalls. In addition, ICAEW surveys have revealed a sharp decline in business morale, reflecting broader pressures on firms navigating tax, costs and muted demand.
Small business leaders remain vocal about high street banks’ risk aversion, citing personal guarantees and restrictive lending criteria as continued barriers. The government-backed British Business Bank’s Growth Guarantee Scheme (GGS) currently supports lenders with 70% guarantees on qualifying SME loans, but trade associations including UK Finance argue it needs additional backing to unlock a meaningful increase in credit supply. The GGS has already supported £2.5bn of lending to SMEs, most of which has been outside London. But the focus now needs to be on scaling it. At its current capacity of £1.2bn a year, the UK scheme is three to four times smaller as a share of GDP than equivalent programmes in the United States, Germany, France and Spain. Allica suggests expanding GGS to £4bn over the next five years would send a strong, credible signal that the UK is serious about reigniting growth and reversing years of underinvestment.
Late payments and the retreat of factoring
Small Business Commissioner Emma Jones has vowed to double down on late payments in 2026. Her support is not before time. Trade bodies say these arrears cost SMEs £22,000 a year on average, ultimately leading to 50,000 annual business closures.
The recently revised Fair Payment Code promised ‘medals’: a gold rating to companies paying 95% of all suppliers within 30 days; silver for honouring those terms for SMEs but 60 days for other suppliers; and bronze for paying 95% of suppliers within 60 days. The intention was to change long term behaviours and break the cycle once and for all; until significant progress has been made and the longer supply chain remains damaged, forget about improved borrowing appetites intentions of SMEs. The liquidity problems in larger companies continue to trickle down, becoming existential liquidity problems in smaller ones. Businesses need cash just to breathe, let alone grow.
One previously well-trodden path for improving short term cashflow seems to be narrowing. Lloyds Bank is the latest high street lender to close or scale back its invoice financing – or ‘factoring’ – operation for SMEs. Factoring has been the process of selling outstanding customer invoices to a bank or finance company at a discount in return for cash upfront. The arrangement would smooth cash flow for businesses and outsource payment collection to an external agent. The carrot for banks had historically been winning small business customers and then cross-selling them other more profitable products. But SMEs have turned out to be far from profitable for banks in recent decades and widely unreceptive to cross-selling.
Less supported by lenders these days, SMEs are under more pressure to grip their own problems. The beginning of the end is when they enter into a cycle of robbing Peter to pay Paul, too often in an unwise combination of late settlement with suppliers and non-payment of corporation tax and/or VAT. It’s a scenario seen as much among relatively established small companies as it is among sole traders. It usually ends badly for both, sometimes with personal insolvency or disqualification for directors.
Cash-strapped suppliers to tight-fisted companies must have the confidence to chase payment and enforce their terms, regardless of the perceived risk of upsetting a customer: if a business agreement is too fragile to able to discuss money indisputably owed, then it will invariably lead to a bad debt, at least in part.
All businesses facing severe cashflow pressures should seek professional advice on credit management, invoice discounting, overdraft planning, communicating with HMRC and contractual terms to minimise the impact of late payments.
As ever, the Buchler Phillips approach to business challenges is ‘workout, not bail out’. Don’t hesitate to get in touch for an exploratory chat if your business needs help. Addressing the cracks now will, in many cases, avoid the need to start again.
Our helplines below are open for free initial consultations.
Jo Milner 07990 816904
David Buchler 07836 777748
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About Buchler Phillips
Buchler Phillips is an independent, UK based corporate recovery and restructuring firm, with an impeccable Mayfair heritage dating back to the 1930s.
Led by David Buchler, former Europe and Africa chairman of global consultancy Kroll Inc, our senior team is equally comfortable advising large corporations, Small & Medium Enterprises (SMEs) or individuals. In addition to decades of experience, each of our Partners brings to any given assignment unique independent insight, free from conflicts of interest, that is often sought but rarely found by clients or co-advisors.
The firm is sector-agnostic, but has particularly strong credentials in property; financial services; professional services; leisure and hospitality; retail and consumer; UK sports; media and entertainment; transport and logistics; manufacturing and engineering; technology and telecoms.
Our activities fall broadly, though by no means exclusively, into financial restructuring, including fraud and forensic investigations; operational restructuring and turnaround; expert witness services and recovery solutions for corporates and individuals.
This newsletter is published for the purposes of general information only and does not constitute advice. Any action taken by readers upon the information above is entirely at their own risk.